When Zimbabwe adopted the multi-currency system, any currency from the basket of currencies was accepted as legal tender within the financial system. When the liquidity crisis supervened, the relevant ministries introduced bond coins and later on bond notes on a 1:1 peg.

Reserve Bank of Zimbabwe Governor John Mangudya presents his Monetary Policy Statement, while Finance and Economic Development Minister Professor Mthuli Ncube and Permanent Secretary George Tongesayi Guvamatanga look on at the RBZ in Harare. —(Picture by Tawanda Mudimu)

The Reserve Bank of Zimbabwe (R.B.Z.)’s 4 December 2014 press release posited that bond coins were ‘introduced to buttress the multiple currency system through the provision of change especially for the US$ notes which have a smallest denomination in circulation in Zimbabwe of US$1.’

Through addressing the divisibility and store of value features of money the R.B.Z. made a public guarantee that ‘the bond coins would therefore be a good store of value.’

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As it later emerged, the bond coin introduction was not triggered by the divisibility concern but obviously the government unrestrained borrowing.

The Zimbabwean currency crisis continued to take a nose-dive which later prompted the introduction of $2.00 and $5.00 bond notes (with effect from 28 November 2016) over and above the bond coins which were already in circulation.

This time however they were mainly introduced ‘to fund export incentives of up to 5% which will be paid to exporters of goods and services and diaspora remittances,’ as stated in the press release.

The 26 November 2016 RBZ press release continued to publicly upheld the 1:1 parity peg. Members of the general public were given the assurance that ‘no new accounts will be opened as the bond notes would be deposited into existing US dollar accounts.’

The bond note was acceptable as legally permissible to settle any debt in any currency, at least within the Zimbabwean borders. At some point, some banks (names withheld) and a mobile money company had a facility where Zimbabweans could use their international cards to withdraw money outside the country (particularly the rand) and even make foreign payments.

Following the 1 October 2018 historic announcement by the Reserve Bank of Zimbabwe of the separation of Nostro accounts and the RTGs accounts, surprisingly however maintaining the public rhetoric of 1:1 parity, the bond note has without a doubt become a volatile currency. The public pronouncements by fiscal authorities that ZIMRA now demands payment of taxes in foreign currency (currency of trade) further compounded the already worse off scenario.

In January 2019, the highest office in the land announced the fuel price increases which had price disparity of US dollar fuel price for foreigners and bond note (RTGs, transfer and mobile money) denominated fuel price.

Shockingly however, regardless of having these apparent price differences, the President reiterated that the 1:1 parity was still maintained. A trace of the government’s 2018 and 2019 episodic political, fiscal and monetary blunders only leads to one conclusion that the economy is now a financial circus.

In the midst of a multi-currency regime, the government is de facto refusing its own currency and demanding foreign currency. Recently in December 2018, newspaper headlines were awash with more evidence that ZIMRA is now demanding the payment of carbon tax in foreign currency. As 2019 began, all foreign registered vehicles now pay Temporary Import Permits (TIPs) in foreign currency (mostly rands and US dollars).

One would not be wrong to make a prediction that government will sooner rather than later start demanding the payment of gate passes and road access fees in foreign currency for all foreign registered vehicles. Government organizations who are also likely going to soon demand foreign currency from foreign registered vehicles include ZINARA for tollgate fees and EMA for any license fees and or penalties levied by the respective organizations.

Not forgetting the MOF who gave a directive that all foreign registered trucks should pay for fuel in foreign currency. What boggles the mind is why should a government which is refusing to accept its own currency behave in this manner? What market signals are they revealing to the much responsive Zimbabwean market?

The Zimbabwean taxman is re-dollarising the economy. It is without a doubt that the R.B.Z’s objective of preserving the bond note value is a failed strategy or a doomed monetary policy direction. As usual, the Zimbabwean market is on its own slowly dollarizing.

From the evidence on the ground; CEOs and CFOs of most private institutions are slowly re-pricing their services, commodities or products in such a manner that willing buyers are indirectly compelled to pay in foreign currency than through bond notes.

For instance, if today one considers the pricing system within the fast foods industry or FMCGs; products now have two prices that is a bond note (RTGs/mobile money) price and a US dollar price. Though this new pricing strategy was adopted as if it’s a promotional tactic towards the 2018 festive season, the open message by these private organisations is that the US dollar is our pricing currency.

A similar observation can be made within the insurance industry. Property valuations for insurance policies now have US dollar and bond note valuation. As such, any sensible individual or corporate intending to insure their valuable assets, are better-off paying US dollar premiums (obviously with the expectation of receiving US dollars whenever any risk occurs).

In most private institutions particularly pharmacies, the bond note price is usually so outrageous to an extent that a willing buyer would rather go to a trusted (obviously fully knowing the consequences of the 10 year jail term) money changer, buy foreign currency from the black market, come back to the same shop and purchase the prescribed drugs.

Simply, private sectors firms have set the bond note prices at a range where a rational consumer would be forced to come back and buy the product using foreign currency. Unfortunately; how, where and when the consumers access the foreign currency is not the entrepreneur’s concern, but the pricing system is forcing the economy to re-dollarise.

Yes, it is permissible to insinuate that in October 2018, the market bubbled (i.e. over-reacted or experienced exaggerated market reactions). However, this writer is concerned with certain fundamental issues and thus tables the following questions; What is the market signaling? Can the R.B.Z strengthen the value of the bond note through the M.P.S? How sustainable if the 1:1 parity condition?

With all the full knowledge of Gresham’s law, the monetary authorities adamantly introduced the bad money (bond notes). Gresham’s law states that whenever any two monetary units (in this case bond notes and US dollar) are given the same face value (1:1 parity condition), the obvious result would be that the overvalued bad money (bond note) will be used whilst the undervalued good money (US dollars) vanishes from the monetary system. The Zimbabwean experience is evidence enough that Gresham’s law is a real-world economic theory which monetary authorities should not discredit.

The monetary authorities should have respected Gresham’s 15th century observation that “good and bad coin cannot circulate together.” Gresham’s conclusions were mainly driven by the works of Aristophanes‘ 405BC poetry work titled ‘The Frogs.’ The Zimbabwean leadership’s failure to learn from ancient economic and political history has brought Zimbabwe to a stage of fighting the bond note plague.

During the ancient days of Aristophanes and Gresham, the easily observable effect of bad money chasing good money was more significant between kingdoms (from one kingdom to another). Therefore the usually common injustice was the value destruction and deprivation of better purchasing power of people within a certain kingdom to another.

Looked at from the lens of that ancient thinking, the rulers of the Zimbabwean kingdom established a multi-currency regime within its own kingdom. Faced with the liquidity crisis, the relevant authorities introduced the bond note.

The observable consequence is the flight of good money (US dollars, South African rands, Botswana pula etc.) from the official markets landing in the hands of the greedy market traders and cash barons. Additionally, there has been a significant flight of good money abroad (South Africa, China and United States of America) as the rulers of the kingdom failed to maintain the value of the bond. Thus even looked at in ancient times, the policies of the kingdom rulers are rendered defective.

Vigorously, the current market signal points towards the inevitable direction that the assumed bond note and United States dollar (USD$) 1:1 parity condition is futile and will soon collapse. For the surrogate bond note to maintain the assumed parity conditions, the monetary authorities need to have foreign currency reserves that can be used for market interventions so as to maintain the value of the bond note.

Since its introduction, the bond note has failed to maintain the parity conditions. The re-emergence of a boisterous parallel market pays homage to the bond note introduction. One of the major issues which contributed to the public outcry and the call for the removal of toxic politics was the parallel market of mainly the USD dollar and the bond note.

In the year 2017, besides the politically destabilizing elements within ZANU PF factions, economic problems particularly the parallel market pushed the masses into the streets (obviously with the blessing or backing of the army). Soon after the military takeover and the official resignation of the former President, the parallel market rates drastically reduced from the estimated highest of 250% to average rates ranging from 30-50% of USD$/RTGS parallel market trading rates.

During the 2018 election campaign period black market rates started to gain momentum but albeit on a moderate scale. The period in between the election date and constitutional court election contestations also had marginal increases. The rates largely oscillated depending on the trending news on who was likely fancied to be the future President. Soon after the historic constitutional court ruling, the parallel market rates peaked an upward trend.

A final blow to the already brewing problem was the 1 October 2018 MPS announcement. The parallel market rates ran amok and traders were paying rates as high as 350-400% for every $100.00 US dollar note. Basing on these signals, one can essentially notice that the bond note has lost its market value and acceptability as a surrogate currency.

In the month of November and December 2018, parallel market rates kind of stabilized within the ranges of $280.00 to $320.00 bond notes (RTGs, transfer and mobile money) for every $100.00 US dollar. The recent fuel price increase however, is expected to change the black market status quo.

Empirical evidence on the ground however openly demonstrates that the monetary authorities do not have any foreign currency reserves and are actually grappling to meet the working capital demands of most corporations (the prime case of RioZim and Delta is a clear testimony). Within the multi-currency set-up, corporations whose prime business is that of exporting under normal circumstances should be receiving their proceeds in US dollars.

However, since the adoption of the central bank’s foreign currency allocation initiative, priority has largely been skewed towards the fuel and oil industry.

The Zimbabwean foreign currency drought and failure to allocate the few available resources to the exporters (who are the foreign currency generators) is an indication of central bank failure to maintain and let alone sustain the assumed parity condition.

The much talked about and very secretive Afreximbank loan facility might be a window dressing scheme. If proven to be true, such financial chicanery at national level is not only intolerable but inhuman.

It is gradually noticeable that the assumed strength of the bond note is merely based on a verbal commitment without any supporting financial schemes which will prove that the parity conditions will be maintained and sustained. Going forward, the moral suasion strategy being adopted by monetary authorities needs a backup of financing schemes which support the assumed parity condition.

The newly publicized ‘austerity for prosperity’ in my opinion is a disproportionate austerity measure. Fiscal authority’s insatiable desire to tax the poor masses whilst financing the lavish spending of the political elite is an unfair governance scheme.

The failure by the fiscal authorities to arrest the main problem plaguing the economy of excessive government spending is a sure market signal that our government is yet to reform and likely going to repeat the yesteryear problems.

The cogent need to eradicate the oligarchy and kleptocracy in our governance system is an unquestionable stratagem. As such, all the three identified key leaders within the economy still have a long way to go if they tolerate any chance of reviving the Zimbabwean economy.

The usual attempt by the governing authorities to use public statements such as ‘wanton profiteering’ or ‘economic saboteurs’ is at this stage an unacceptable position that the current leadership can take against private sector institutions. The very act of sabotage or unfair governance practice is starting from the government institutions themselves.

As such, any attempt by entrepreneurs to hedge against perceived (and in most cases real) currency losses should be viewed by the leadership as a rejection of unworkable monetary policy measures. Instead of adopting the blame-game tactics, the country’s leadership should instead solve the currency crisis currently bedeviling our country.

In a nutshell, the perpetuation of government policy inconsistencies, corruption and political self-aggrandizement will surely make the Zimbabwean road to economic recovery an insurmountable task. Contrary to the proposed introduction of Zimbabwe’s own currency in the next 12 months, in my opinion Zimbabwe still needs a paradigm shift in its fiscal, monetary and political governance system. A new currency needs foreign currency reserves. Generating the much needed foreign currency to pay back our indebtedness, stabilize the financial sector and later on finance a new currency introduction within such a short space of time can be economic hallucinations.

I will keep singing the same song of fiscal consolidation directed towards government portfolios, demonetization of the bond note, full dollarization in the interim period, criminalizing the abuse of public offices, reducing the size of the public sector and a variety of structural reforms. Zimbabwean economic problems are largely incubated from the political governance system. The de-contamination of the politically unhygienic impediments is undoubtedly an unquestionable bedrock for economic recovery.

Paddington Masamha is independent Financial & Economic Analyst. You can reach him on email [email protected] or Twitter @PMasamha